This is really an odd situation, said Jim Carter, general manager of Highland Publishing Company. We get most of the jobs we bid on that require a lot of press time in the Printing Department, yet profits on those jobs are never as high as they ought to be. On the other hand, we lose most of the jobs we bid on that require a lot of time in the Binding Department. I would be inclined to think that the problem is with our overhead rates, but were already computing separate overhead rates for each department. So what else could be wrong?

Highland Publishing Company is a large organization that offers a variety of printing and binding work. The Printing and Binding departments are supported by three service departments. The costs of these service departments are allocated to other departments in the order listed below. The Personnel cost is allocated based on number of employees. The Custodial Services cost is allocated based on square feet of space occupied and the Maintenance cost is allocated based on machine-hours.

Department	Total Labor-Hours	Square Feet of Space Occupied	Number of Employees	Machine-Hours	Direct Labor-Hours
Personnel	16,400	12,200	25
Custodial Services	8,200	3,200	47
Maintenance	14,600	10,900	64
Printing	30,700	40,300	106	163,000	16,000
Binding	108,000	20,200	302	50,000	73,000
	177,900	86,800	544	213,000	89,000

Budgeted overhead costs in each department for the current year are shown below:

Personnel	$ 320,000
Custodial Services	65,600
Maintenance	93,100
Printing	413,000
Binding	169,000
Total budgeted cost	$ 1,060,700

Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments.

Required:

1. Using the step-down method, allocate the service department costs to the consuming departments. Then compute predetermined overhead rates in the two operating departments. Use machine-hours as the allocation base in the Printing Department and direct labor-hours as the allocation base in the Binding Department.

2. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments.

3. Assume that during the current year the company bids on a job that requires machine and labor time as follows:

	Machine-Hours	Direct Labor-Hours
Printing Department	2,000	1,400
Binding Department	800	13,800
Total hours	2,800	15,200

a. Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (1) above. Then determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (2) above.

Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req Using the step-down method, allocate the service department costs to the consuming departments. Then compute predetermined overhead rates in the two operating departments. Use machine-hours as the allocation base in the Printing Department and direct labor- hours as the allocation base in the Binding Department. (Please enter allocations from a department as negative and allocations to a department as positive. The line should add across to zero. Do not round intermediate calculations. Round "Predetermined overhead rate" to 2 decimal places and rest of the answers to the nearest whole dollar amount.) Show less A Personnel Maintenance Printing Binding Custodial Services $ 65,600 $ 320,000 $ 93,100 $ 413,000 $ 169,000 Departmental costs before allocations Allocations: Personnel costs (320,000) Custodial services costs Maintenance costs Total costs after allocations 0 65,600 93,100 413,000 169,000 Predetermined overhead rate developed in (2) above. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req Repeat requirement 1 above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments. (Please enter allocations from a department as negative and allocations to a department as positive. The line should add across to zero. Do not round intermediate calculations. Round "Predetermined overhead rate" to 2 decimal places and rest of the answers to the nearest whole dollar amount.) Show less Personnel Maintenance Printing Binding Custodial Services $ 65,600 $ 320,000 $ 93,100 $ 413,000 $ 169,000 Departmental costs before allocations Allocations: Personnel costs Custodial services costs Maintenance costs Total costs after allocations 320,000 65,600 93,100 413,000 169,000 Predetermined overhead rate Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Req Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in requirement 1 above. Then determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in requirement 2. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) Show less Total Overhead Cost Step-down method Direct method